US Dollar is backed by?

[ckaihatsu]

---





Paralysis of international monetary management

Floating-rate system during 1968–1972




The essential conflict was that the American role as military defender of the capitalist world's economic system was recognized, but not given a specific monetary value. In effect, other nations "purchased" American defense policy by taking a loss in holding dollars. They were only willing to do this as long as they supported U.S. military policy. Because of the Vietnam War and other unpopular actions, the pro-U.S. consensus began to evaporate. The SDR agreement, in effect, monetized the value of this relationship, but did not create a market for it.




http://en.wikipedia.org/wiki/Bretton_Woods_system#Paralysis_of_international_mo netary_management

[tuwix]

Can someone explain this to me?

Paper is backed by paper. It's simple. If you expect anything more like gold, sliver or platinum, you won't find anything like that.

[cyu]

https://www.google.com/#q=dumping+dollars

[Prof. Oblivion]

I'm unsure as to what you're looking to have explained

[cyu]

I'm unsure as to what you're looking to have explained

I'd like you to explain why you don't think dollar hegemony is under threat, and how you think any major threats to it will be dealt with handily by the capitalists, so that leftists shouldn't even bother trying ;)

[Trap Queen Voxxy]

Originally, gold. I assume we know this. Originally the American dollar represented a bank IOU. Now, it's Monopoly money essentially worthless. Which is why I have advocated counterfeiting (on a mass scale) as means to undermine and severely fuck the monetary/capitalist system while providing immediate and temporary benefits and gains to honest citizens.

[cyu]

http://everything2.com/user/seeya/writeups/gold+standard

Before the invention of money (long long ago, in a galaxy not so far away), people used barter in order to get the things they didn't have enough of. This became quite cumbersome, so they agreed on a representative unit of wealth. Rather than having to carry around anvils, or fish, or wool whenever you had to buy something, they instead carried around this unit of currency - in many cases, it was gold (today, it might be dollars).

At some point in the history of banking, this unit of currency was no longer used, but was instead replaced by the writing of paper checks from one bank account to another. However the gold remained in the bank, even though it was no longer used - this was an attempt to give some legitimacy to the new paper notes being used - the gold standard.

The problem with this idea is that it is similar to the creation of a "dollar standard" - creating a new currency to use, while holding a reserve of dollars in the bank to give the new currency some legitimacy. The problem is that the commodity held in reserve was merely a unit of exchange and derives its value mainly from its previous use as currency. The original backing of the currency is lost.

The Sumerians, as part of their development of a standard of weights and measures, placed the royal stamp on each piece of gold to guarantee that it was the same amount as every other similarly stamped gold piece. They simply agreed that this was worth a bushel of wheat - the value was never in the gold. For each amount of gold issued by the king, a certain amount of wheat is kept in reserve in order to ensure that gold has some value. This ensures that the value of the gold with respect to wheat did not change - no inflation. When the gold is returned to the king, it is redeemed with the wheat that it represented. This, in effect, is a "wheat standard".

See also http://www.revleft.com/vb/time-new-theory-t144224/index6.html

[tallguy]

http://www.federalreserve.gov/faqs/currency_12770.htm

Government sponsored enterprises (http://www.investopedia.com/terms/g/gse.asp)
Federal agencies (http://en.m.wikipedia.org/wiki/List_of_United_States_federal_agencies)

Can someone explain this to me?men with guns

[cyu]

men with guns

Speaking of which...

http://dalepope.name/phpdvdprofiler/images/043396094482f.jpg

...awesome movie (from what I can remember)

[Prometeo liberado]

If you read Grabers book on debt he makes a compelling case for the argument that all forms of financial transactions are merely a societal trust. Barter reduced to a stick representing "X" amount of worth and so on. So long as you have faith in god it exist so to speak.

[Vilhelmo]

The USD is "backed" by taxation. The US Dollar Standard is "backed" by the US Military

[cyu]

The USD is "backed" by taxation. The US Dollar Standard is "backed" by the US Military


So if leftists either gained enough power to fight off the US military (or if leftists gained enough influence among rank and file soldiers to prevent capitalist control), what do you think would or should happen to the US dollar?

[ToxicAcidRed]

The USD is "backed" by taxation. The US Dollar Standard is "backed" by the US MilitarySo if leftists either gained enough power to fight off the US military (or if leftists gained enough influence among rank and file soldiers to prevent capitalist control), what do you think would or should happen to the US dollar?
I'm pretty sure the USD isn't necessarily backed by the Army, considering by definition military production has no real value (outside of killing people of course) and wars destroy wealth (obviously) rather than creating it.
I can't post links, but just google it.

[Vilhelmo]

So if leftists either gained enough power to fight off the US military (or if leftists gained enough influence among rank and file soldiers to prevent capitalist control), what do you think would or should happen to the US dollar? Depends what you mean by "leftist" Is president of the Socialist International, George Papandreou (former Prime Minister of Greece) a "leftist/socialist"? Are his policies leftist/socialist? I call them fascist.

[cyu]

Assuming you're a leftist and not just a pro-capitalist pretending to be one, what if your ideas took over?

[Vilhelmo]

Assuming you're a leftist and not just a pro-capitalist pretending to be one, what if your ideas took over?

The policies I advocate are the same regardless.



Permanent Job Guarantee Program (living wage & benefits)
Free Public Education
PharmaCare - free prescription drugs
Public Housing
Tax Reform - Abolish Income & sales taxes, Institute an Economic Rent Tax
Drug Legalization
Massive Infrastructure Spending
Banking & Monetary Reform
Anti-Shit Law
Debt Cancellation
etc

[tallguy]

I'm pretty sure the USD isn't necessarily backed by the Army, considering by definition military production has no real value (outside of killing people of course) and wars destroy wealth (obviously) rather than creating it.
I can't post links, but just google it.You're kidding right? What do you think all the military adventures in the Middle-East are at least partially about if not to keep oil traded in USD? It's no coincidence that Saddam suddenly ceased to be a "friend" of the West immediately following initial deals to trade Iraqi oil something other than the dollar.

Also, the more general use of the military or, the propping up of local military dictators around the world is about maintaining economic hegemony, in turn maintaining the dollar indirectly.

When your currency is an otherwise un-backed, debt-based fiat, the only thing that keep "confidence" in that currency is fear.

[Criminalize Heterosexuality]

The policies I advocate are the same regardless.



Permanent Job Guarantee Program (living wage & benefits)
Free Public Education
PharmaCare - free prescription drugs
Public Housing
Tax Reform - Abolish Income & sales taxes, Institute an Economic Rent Tax
Drug Legalization
Massive Infrastructure Spending
Banking & Monetary Reform
Anti-Shit Law
Debt Cancellation
etc



In other words, you're a Keynesian liberal. I do like the "anti-shit law", though.

[Vilhelmo]

I'm pretty sure the USD isn't necessarily backed by the Army
I said the US Dollar Standard was backed by the US military NOT the USD.

[Vilhelmo]

In other words, you're a Keynesian liberal. I do like the "anti-shit law", though.
Most Keynesians do not advocate these policies. I wish they did. At heart, I'm an anarchist.

[cyu]

How would you differentiate your proposals from liberal proposals? Do you believe plutocrats can still remain in power after your policies are enacted? If not, what would prevent plutocrats from holding on to power, or gaining control of your institutions?

[Vilhelmo]

How would you differentiate your proposals from liberal proposals? I honestly don't know. Many of "my" policies were once considered conservative. They are based on the Conservative "National Policy" & in the US, the Republican "American System".
Do you believe plutocrats can still remain in power after your policies are enacted? If not, what would prevent plutocrats from holding on to power, or gaining control of your institutions? The idea is that if "my" policies were enacted the plutocrats wouldn't be plutocrats.

[cyu]

if "my" policies were enacted the plutocrats wouldn't be plutocrats.

How so? Will there still be some people with more money than others? If so, how much more? Would the gap between rich and poor be just as large as it is now? If not, how is that prevented?

[Kingfish]

It is backed by oil. Not in the sense that you could go to the reserve bank and directly exchange it for a barrel but in the sense that most of the major producers and holders of oil will only accept payment in US dollars. Given oils importance to the modern economy a strong and stable demand is created for the US dollar which would otherwise by much weaker due to domestic policies.

That is how it can keep on going.

[Vilhelmo]

It is backed by oil. Not in the sense that you could go to the reserve bank and directly exchange it for a barrel but in the sense that most of the major producers and holders of oil will only accept payment in US dollars. Given oils importance to the modern economy a strong and stable demand is created for the US dollar which would otherwise by much weaker due to domestic policies.

That is how it can keep on going.

Which is the result of the US Dollar Standard & the US military, not to mention its ~1000 foreign military bases.

[Vilhelmo]

How so? Will there still be some people with more money than others? If so, how much more? Would the gap between rich and poor be just as large as it is now? If not, how is that prevented?

Maybe I should start a thread outlining the policies I advocate, if it is more appropriate. Is it?

[cyu]

Maybe I should start a thread outlining the policies I advocate

If it starts sounding pro-capitalist, it will probably just get deleted :lol:

Anyway, from http://cjyu.wordpress.com/article/if-they-do-not-give-you-work-or-bread-gcybcajus7dp-10/

“Ask for work. If they do not give you work, ask for bread. If they do not give you work or bread, then take bread.”

Part of a speech by Emma Goldman when she was invited to a strike at Union Square, New York. Her speech quoted this declaration from Cardinal Henry Edward Manning:

“Necessity knows no law, and the starving man has a natural right to a share of his neighbor’s bread.”

The laws of man are much easier to break than the laws of survival. If your society isn’t providing enough legal ways to make a decent living, then more and more people will resort to illegal ways.

This isn’t to say I’m encouraging everyone to take bread or engage in armed robbery on the high seas, because while I think it’s justified for those who need to do it to survive, I don’t believe (for obvious reasons) that it’s a good economic strategy.

I would instead encourage the taking of the actual means of production (land, raw materials, equipment, etc) – like what the MST of Brazil did or what the rest of the Latin American recovered factory movements are doing.

[Vilhelmo]

If it starts sounding pro-capitalist, it will probably just get deleted :lol:

Would it help if I called them "socialist"? :)

What do you consider to be left/socialist policies?

[cyu]

What do you consider to be left/socialist policies?


Why do you think I posted the link to http://cjyu.wordpress.com/article/if-they-do-not-give-you-work-or-bread-gcybcajus7dp-10/ ?

[Vilhelmo]

Why do you think I posted the link to http://cjyu.wordpress.com/article/if-they-do-not-give-you-work-or-bread-gcybcajus7dp-10/ ?

I meant specific government policies. I far as I could tell, none of these were government policies. But, I must admit that I'm not the sharpest knife in the drawer. So, please forgive my ignorance.

[cyu]

I meant specific government policies


Lol, you're asking for government policies from an anarchist?

Well, let's say those in charge in Venezuela decided to come to me for advice. What would I tell them? Send your troops and policemen into all workplaces. Tell the employees that if they wanted a democratic workplace, your soldiers and police will support them and help protect them, if that's what they choose to implement in their company. (I would also have them pass out weapons to the employees and teach them how to protect themselves.)

[Vilhelmo]

Lol, you're asking for government policies from an anarchist?

Why not?
For centuries Anarchists have advocated government policies that could be immediately implemented in order to improve people lives & create a fairer, more just society in the present.


Tell the employees that if they wanted a democratic workplace, your soldiers and police will support them and help protect them

Ok, democratic workplaces.
I understand the basic concept.
My ideal system, Parecon, also features democratic workplaces.
My only concern is that absent other reforms or a different institutional structure, they don't tend to make much difference.

[cyu]

absent other reforms or a different institutional structure, they don't tend to make much difference.


No doubt you've heard about the recent troubles in the currency markets, and investors in "precious" metals not really knowing what the heck they're doing. In order to get around that kind of instability, again I refer you to https://web.archive.org/web/20010417014827/http://infoshop.org/rants/yu1.html

As for the more fundamental issue of resource allocation and motivation (something I'd say most economists are less able to answer than psychologists), I'd refer you to http://cjyu.wordpress.com/article/equal-pay-for-unequal-work/

[ckaihatsu]

---





It is backed by oil. Not in the sense that you could go to the reserve bank and directly exchange it for a barrel but in the sense that most of the major producers and holders of oil will only accept payment in US dollars. Given oils importance to the modern economy a strong and stable demand is created for the US dollar which would otherwise by much weaker due to domestic policies.

That is how it can keep on going.





Petrodollar

From Wikipedia, the free encyclopedia

A petrodollar is a United States dollar earned by a country through the sale of its petroleum (oil) to another country.[1] The term was coined in 1973 by Georgetown University economics professor, Ibrahim Oweiss, who recognized the need for a term that could describe the dollar received by petroleum exporting countries (OPEC) in exchange for oil.

[...]

[Vilhelmo]

In order to get around that kind of instability, again I refer you to https://web.archive.org/web/20010417014827/http://infoshop.org/rants/yu1.html

This article is based on a fundamental misunderstanding of money & monetary systems.


Money within your own economy should be based on real wealth

Money is NOT wealth.
All money is a claim on wealth.


Re: http://cjyu.wordpress.com/article/equal-pay-for-unequal-work/

Instead of higher profits going to the producers, the extra money going into those industries just means there is more demand for those products and services. So the money is used to pay new producers in those industries, thus increasing supply – and everyone still has the same monthly salary

I'm not sure what you mean.
Could you elaborate?

Regarding the remainder, what about Economic Rent & Unearned Income?

[cyu]

All money is a claim on wealth.



From https://web.archive.org/web/20010417014827/http://infoshop.org/rants/yu1.html

be warned that these notes are still only as good as the institutions that issue them. Either you trust that they can always be redeemed, or you redeem them as soon as it is convenient. This is especially true of money you receive from other nations that is supposedly backed in the same way. Distance makes people bolder and less hesitant to break promises.

People can probably be trusted when times are easy and when prosperity reigns, but when times are tough, promises are much easier to break than the laws of survival.


what about Economic Rent & Unearned Income?

From http://workersolidarity.org/archive/wherewestand.html

Tenants must take over the management of the buildings where they live.

[Vilhelmo]

People can probably be trusted when times are easy and when prosperity reigns, but when times are tough, promises are much easier to break than the laws of survival.


A nation that issues its own currency, that denominates all its debts in its currency & imposes taxation payable in its currency alone, can NEVER involuntarily default or "go broke".
It is ALWAYS able to pay.
The only promise it makes is to accept its money in payment of taxes (or any other debt owed).
Its money will always have some value as long as its needed to pay taxes.

[Vilhelmo]

Tenants must take over the management of the buildings where they live.

What does this have to do with Economic Rent or Unearned Income?

[cyu]

A nation that issues its own currency, that denominates all its debts in its currency & imposes taxation payable in its currency alone, can NEVER involuntarily default or "go broke".
It is ALWAYS able to pay.

Depends on your definition of "nation" - for example, what if the residents living there took up arms and defied their government - refusing to pay tax or follow assigned property claims, who is the nation now? The general population of residents or the tax collectors?

[Vilhelmo]

Depends on your definition of "nation"

In this context I was using "nation", basically, in reference to the national government.


what if the residents living there took up arms and defied their government - refusing to pay tax or follow assigned property claims, who is the nation now? The general population of residents or the tax collectors?

In the statement you quoted, my use of the term "nation" would remain in reference to national governments.

[cyu]

So if the national government were controlled by plutocrats, and the residents living there took up arms and defied their government - refusing to pay tax or follow assigned property claims, would the national government "go broke"?

[Vilhelmo]

So if the national government were controlled by plutocrats, and the residents living there took up arms and defied their government - refusing to pay tax or follow assigned property claims, would the national government "go broke"?

No, not involuntarily. A Monetarily Sovereign Nation, such as I described, can NEVER involuntarily default or "go broke". It can always make payment. That being said, under these conditions, the currency is sure to lose significant, if not all, value.

[cyu]

under these conditions, the currency is sure to lose significant, if not all, value.


If the currency you own loses all value, would you be "broke"?

[Vilhelmo]

If the currency you own loses all value, would you be "broke"?

By "broke", as the context made evident, I meant the inability to make payment, to involuntary default on one's debts.

Even if the national currency losses all value, the government is still able to make payments on its debts, which are denominated in national currency.

[cyu]

Even if the national currency losses all value, the government is still able to make payments on its debts, which are denominated in national currency.

That's true - at least if the debt were 1 billion pieces of a certain paper, you could always pay it back with 1 billions pieces of that paper - it would actually be in your benefit if that paper were worthless (ie. currency devaluation), since you wouldn't be losing much.

[ckaihatsu]

By "broke", as the context made evident, I meant the inability to make payment, to involuntary default on one's debts.

Even if the national currency losses all value, the government is still able to make payments on its debts, which are denominated in national currency.





That's true - at least if the debt were 1 billion pieces of a certain paper, you could always pay it back with 1 billions pieces of that paper - it would actually be in your benefit if that paper were worthless (ie. currency devaluation), since you wouldn't be losing much.


Cyu, you're addressing this scenario from the standpoint of a debtor -- which is fine, of course -- but, to veer back to the main topic here:

If a *government* has debts denominated in its own, national currency, *and* that currency loses all value, that government's currency will most likely *not* be honored by any foreign, creditor nations. It would be hyperinflation for that government's economy, as is threatening to be the case right now with Turkey, Argentina, Hungary, and most probably several others soon.

[Vilhelmo]

If a *government* has debts denominated in its own, national currency, *and* that currency loses all value, that government's currency will most likely *not* be honored by any foreign, creditor nations.

As these debts are denominated in national currency, creditors have no choice but to accept payment in national currency regardless of how much value it may lose.


It would be hyperinflation for that government's economy,

Why would this cause hyperinflation?

[cyu]

As these debts are denominated in national currency

Always?

http://finance.yahoo.com/news/everything-know-emerging-market-currency-193029269.html

Emerging markets don't have enough foreign-money debt this time around to make their falling currencies much of a concern. Some emerging markets are going to have a tough time with foreign-money debt

[Vilhelmo]

Always?


Of course not.

The Soviet Union, foolishly, pegged it's currency to the USD. It ultimately was a primary factor in its collapse.

[cyu]

The Soviet Union, foolishly, pegged it's currency to the USD. It ultimately was a primary factor in its collapse.


What is your opinion on the end of the US dollar as the world reserve currency?

[ckaihatsu]

As these debts are denominated in national currency, creditors have no choice but to accept payment in national currency regardless of how much value it may lose.


Okay, agreed, but I mean to also note that geopolitical relations would be affected.





Why would this cause hyperinflation?


When investors lose confidence in a nation's currency, the nation faces the threat of a loss of investment, going-forward. The nation will increase the interest rate its central bank is willing to pay for deposits, so as to accommodate the increased financial risk -- perceived and/or real -- of retaining those investments in that country.

Increased rates -- for whatever asset -- also indicates increased nominal risk, since the higher-rate payout is *not guaranteed*. The higher-rate asset is most likely more volatile and could very well dramatically decrease in value, suddenly -- see 'junk bonds'.

[Vilhelmo]

Okay, agreed, but I mean to also note that geopolitical relations would be affected.. I'm not sure what you mean. Could you give an example?
When investors lose confidence in a nation's currency, the nation faces the threat of a loss of investment, going-forward. The nation will increase the interest rate its central bank is willing to pay for deposits, so as to accommodate the increased financial risk -- perceived and/or real -- of retaining those investments in that country.. A higher interest rate on Government bonds &/or CB Reserves may attract more bond purchases or CB deposits but not investment, foreign or domestic. In fact by increasing the interest rate, funds are being diverted away from productive investment. Government bonds/CB Reserves are both risk-free & non-productive making interest payments a form of welfare.
Increased rates -- for whatever asset -- also indicates increased nominal risk, since the higher-rate payout is *not guaranteed*. The higher-rate asset is most likely more volatile and could very well dramatically decrease in value, suddenly -- see 'junk bonds'. Government bonds of Monetarily Sovereign Nations, of which we are speaking of, are risk-free at any rate.

[ckaihatsu]

As these [government] debts are denominated in national currency, creditors have no choice but to accept payment in national currency regardless of how much value it may lose.





Okay, agreed, but I mean to also note that geopolitical relations would be affected.





I'm not sure what you mean. Could you give an example?





The [1997-1998] economic crisis also led to a political upheaval, most notably culminating in the resignations of President Suharto in Indonesia and Prime Minister General Chavalit Yongchaiyudh in Thailand. There was a general rise in anti-Western sentiment, with George Soros and the IMF in particular singled out as targets of criticisms. Heavy U.S. investment in Thailand ended, replaced by mostly European investment, though Japanese investment was sustained.[citation needed] Islamic and other separatist movements intensified in Southeast Asia as central authorities weakened.[48]




http://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Consequences


---





Why would this cause hyperinflation?





When investors lose confidence in a nation's currency, the nation faces the threat of a loss of investment, going-forward. The nation will increase the interest rate its central bank is willing to pay for deposits, so as to accommodate the increased financial risk -- perceived and/or real -- of retaining those investments in that country.





A higher interest rate on Government bonds &/or CB Reserves may attract more bond purchases or CB deposits but not investment, foreign or domestic. In fact by increasing the interest rate, funds are being diverted away from productive investment.


But that higher interest rate -- and those additional bond purchases -- will bolster the country's *currency*, thereby retaining value for all investments denominated in that national currency. Granted, a stronger currency is a *disincentive* for foreign-based purchases -- meaning domestic production and export.


---





Increased rates -- for whatever asset -- also indicates increased nominal risk, since the higher-rate payout is *not guaranteed*. The higher-rate asset is most likely more volatile and could very well dramatically decrease in value, suddenly -- see 'junk bonds'.





Government bonds/CB Reserves are both risk-free & non-productive making interest payments a form of welfare. Government bonds of Monetarily Sovereign Nations, of which we are speaking of, are risk-free at any rate.


I differ with your description here, and here's evidence to the contrary:





The crisis intensified when, on 5 December 2001,[27] the IMF refused to release a US$1.3 billion tranche of its loan, citing the failure of the Argentine government to reach previously agreed-upon budget deficit targets,[38] and demanded further budget cuts, amounting to 10% of the federal budget.[39] On 4 December, Argentine bond yields stood at 34% over U.S. treasury bonds, and, by 11 December, the spread jumped to 42%.[40][41]

By the end of November 2001, people began withdrawing large sums of dollars from their bank accounts, turning pesos into dollars and sending them abroad, causing a bank run. On 2 December 2001 the government enacted measures, informally known as the corralito,[42][43] that effectively froze all bank accounts for twelve months,[44][45] allowing for only minor sums of cash to be withdrawn, initially $250 a week.[46]


December 2001 riots and political turmoil

The freeze enraged many Argentines who took to the streets of important cities, especially Buenos Aires. They engaged in protests that became known as cacerolazo[43][47][48][49] (banging pots and pans). These protests occurred especially in 2001 and 2002. At first the cacerolazos were simply noisy demonstrations, but soon they included property destruction,[50] often directed at banks,[51][52] foreign-owned privatized companies, and especially big American and European companies.




http://en.wikipedia.org/wiki/1998%E2%80%932002_Argentine_great_depression

[Cheese Guevara]

US dollar is backed by faith and magic!

The Latin root of the word "credit" is itself "to believe"/"faith".

[Vilhelmo]

I differ with your description here, and here's evidence to the contrary:
Argentina had a fixed exchange rated (pegged to the USD) & was therefore NOT Monetarily Sovereign.

[Sea]

US dollar is backed by faith and magic!

The Latin root of the word "credit" is itself "to believe"/"faith".No, the US dollar is backed by the alienated value that it represents. I know I'm dumbing it down, but faith and magic have nothing to do here aside form a vague obscuritan etymological (ir)relevance. Of course, more than occasionally there are discontinuities. Money is just not hard to understand. Don't fetishize it, and certainly not in the Marxian sense.